A policy renewal requires a living insured to form a valid insurance contract, the Sixth Circuit recently ruled. In Boby Davis, et al. v. Westfield Ins. Co., Case No. 21-2797 (6th Cir. Mar. 14, 2022), Della Shields received a yearly homeowner’s insurance policy covering her home in Muskegon, Michigan from 2013 until her death in March 2018. Shields was the sole named insured in the yearly policy declarations.
At the time of Shields’s death, her adult daughter, Yvonne Jones, lived with her at the home in Muskegon. Jones qualified as an “insured” under the policy because she was a “resident of the household” and was a “relative” of Shields. Boby Davis, another one of Shields’s adult children, was Shields’s conservator prior to her death. Jones and Davis co-owned the home with their mother. The 2017-18 policy in effect at the time of Shields’s death contained a death clause, which specified that if the “person named in the Declarations” dies, the insurer will “insure the legal representative of the deceased but only with respect to the premises and property of the deceased covered under the policy at the time of death.”
Unaware of Shields’s death, the insurer issued a policy renewal in June 2018 to run until June 2019. Shields was again the sole named insured. Davis continued to deposit funds into Shields’s bank account to cover the premiums, and the insurer continued to debit payment from Shields’s account.
In March 2019, a fire damaged the Shields home, and Davis submitted a claim under the policy. After an investigation, the insurer denied the claim and rescinded coverage on the grounds that it was unaware Shields was dead when it issued the policy renewal in June 2018. The insurer refunded all premiums paid under the 2018-19 policy.
Davis, representing her mother’s estate, filed suit together with her sibling, Jones, against the insurer in Michigan state court, and the insurer removed the case to federal court. Davis and Jones brought claims for breach of contract, reformation, violations of the Michigan Uniform Trade Practices Act, and equitable estoppel. The insurer moved for summary judgment, arguing that the policy issued to Shields in June 2018 was void because Shields was dead at the time of renewal. The district court agreed and granted summary judgment to the insurer.
On appeal, Davis and Jones argued that summary judgment was improper because the court may grant reformation of the June 2018 policy by substituting Jones for Shields as the named insured. However, the court held that, to obtain the equitable remedy of reformation and obtain damages for breach of contract, the plaintiffs must first show the existence of a valid contract. To that end, the plaintiffs argued that the June 2018 policy renewal was not an offer to enter a “new” contract, but rather a continuation of the contract already in effect between the insurer and Shields.
The court disagreed, holding that the plaintiffs failed to show that the insurer and Shields intended for the June 2018 renewal to constitute one continuous contract. The court noted that nothing in the 2017-18 policy indicated that the parties intended for the insurer to renew the policy beyond Shields’s death. In fact, the inclusion of the death clause indicated the opposite. Because the 2018 policy did not constitute a continuing contract with the 2017 policy, the court considered the renewal declaration as merely an offer to Shields to enter a new contract – and Shields lacked capacity to assent to that offer on account of her death. While the court did not explicitly say so, it implied that the death clause would only apply if the insured was alive at the time of renewal and then died during the policy period of the properly renewed insurance contract.
The court further held that the insurer’s issuance of the June 2018 renewal declaration and acceptance of premiums from Shields’s bank account did not form an implied-in-fact contract with Shields’s estate because there was no indication from the facts in the record that the insurer had actual or constructive notice of Shields’s death prior to the fire loss. In fact, the plaintiffs acknowledged that they did not notify the insurer of their mother’s death and they continued to deposit funds into their mother’s bank account from which the insurer debited the premiums. While acknowledging that the equities may well weigh in the plaintiffs’ favor, as the insurer’s risk was no different if the policy had been issued to Jones rather than her mother, the court stated that it was powerless to grant the equitable remedy of reformation in the absence of a valid contract.
Finally, because no contract existed as a matter of law, the court held that the insurer was not equitably estopped from denying coverage. The court explained that equitable estoppel does not operate to bring into existence a contract not made by the parties. Because the policy renewal declaration issued in June 2018 did not form a valid contract, the court affirmed summary judgment in favor of the insurer.
Based on the court’s ruling in Davis, a policy renewal for a deceased insured constitutes an offer with no acceptance, and no “meeting of the minds” required for a valid insurance contract. In the Sixth Circuit, insurers can, therefore, rescind the policy and return the premiums if they later discover that an insured had died during a prior policy period and they renewed the policy without being informed of the insured’s death.